RESULTS OF OPERATIONS

Net Income/Loss

FY 2001 generated $23.6 million in net income, a 47.8 percent decrease from FY 2000 net income of $45.2 million. income is a picture of fees earned compared to costs incurred during a specific period of time, it is not necessarily anindicator of net income or net loss over the life of a patent or trademark. during the FY being reported, regardless of when the fees were collected. net income or net loss is recorded for the patent business line. production levels 3.5, 7.5, and 11.5 FYs ago rather than a reflection of productivity levels in FY 2001. efees can have a significant impact on matching costs and revenue. that begin and end the FY in various phases of their life cycle. Net income for the FY is dependent upon the phase work has gone through.

After several years of net income, the patent business line experienced a net loss of $23.5 million in FY 2001. work processed begins to normalize earned revenues and costs over the life cycle of patents to better approximate a $0 netincome. to total application inventory, resulting in an additional $21.9 million of revenue deferred in FY 2001. revenue deferred reduce net income, this change contributed greatly to the patent business line’s net loss.

The trademark business line incurred a net income of $47.1 million in FY 2001 by completing large volumes of work to fulfillorders received in prior years. rademark’s operations were able to address their backlog because of a temporary declinein new applications submitted during FY 2001 and an 11.4 percent increase in staff.

Components of Net Income/Loss

The following charts depict the USPTO’s financial operations for the past four FYs. There have been gradual increases in both revenues and costs, indicating steady growth.

D

D

Earned Revenue

Earned revenue totaled $1,040.2 million for the year ended September 30, 2001, an 8.8 percent increase over FY 2000 earned revenue of $956.5 million. Of fees earned during FY 2001, $258.9 million related to revenue deferred in prior FYs, $307.5 million related to maintenance fees collected during FY 2001, which are immediately considered earned, and $473.8 million related to work performed on fees collected during FY 2001.

Patent business operations earned $859.0 million for FY 2001, a 5.1 percent increase over $817.4 million in FY 2000. Revenue is earned at the current fee rate. Filing, issue, and maintenance fees were raised slightly at the beginning of FY 2001, accounting for the small increase in revenue.

D

Patent maintenance fees have traditionally been the largest category of patent fees. Therefore, fluctuations in rates of renewal can significantly affect patent revenue. However, there can be no assurance that the USPTO will be able to sustain or improve upon historic or current renewal rates in future years. Rates of renewal continued to slowly climb in FY 2001.

Trademark business operations earned $181.2 million for FY 2001, a 30.3 percent increase from $139.1 million in FY 2000. This increase is due to earning revenue deferred in prior years that relates to the large amount of prior year workload that was completed during FY 2001. This drastically reduced the amount of trademark work outstanding.

D

The USPTO charges a single fee for the registration of both use-based and intent-to-use applications. Then, another fee is charged for intent-to-use applications because these applications require additional disclosures for trademark examiner review.

Trademark renewals are only required if continued protection is requested. To some extent, renewals subsidize costs incurred during the initial registration process. The large increase in the rate of renewals in FY 2000 was due to a new requirement to pay a renewal fee every 10 rather than every 20 years.

Program Cost

Program costs totaled $1,016.6 million for the year ended September 30, 2001, an 11.6 percent increase over FY 2000 program costs of $911.3 million. As a service organization, USPTO’s production was related directly to personnel examining patent and trademark applications. Accordingly, personnel services and benefits costs directly attributable to the two business lines traditionally represent over one-half of total costs. Any change or fluctuation in staffing or pay rate patterns directly affects the change in total program costs. Total direct personnel services and benefits costs increased 11.9 percent over the FY 2000 amount of $448.5 million, to $501.9 million for FY 2001. This change drove the increase in total program cost and was due to several changes in pay scales.

In addition to the January 2001 federal-wide 3.8 percent increase in the general pay scale, as of June 2001, certain patent examiners and other USPTO employees were switched to a new pay schedule. This pay schedule covered over 3,600 employees and represented approximately another 10 percent increase in pay for over half of the workforce. While compensation per employee increased, hiring freezes and attritions due to a change in appointed positions kept staffing increases low. Without these decreases, personnel services and benefits costs would have increased much more.

Rent, communications, utilities, contractual services, and depreciation costs traditionally comprise a third of total program costs each year. Contractual services directly attributable to business lines increased 12.7 percent from $104.0 million in FY 2000 to $117.2 million in FY 2001. Increases were incurred largely in the patent business line as a response to increases in demand and a continued move towards automated processes. Increases were incurred in a wide variety of activities, such as a shift to 24/7 PALM support, other increased electronic processing support, increased facilities research services, and increased mail services.

Patent business operations cost $882.5 million for FY 2001, a 13.0 percent increase over the total patent program cost of $781.3 million in FY 2000. Patent costs are spread over four main patent products: utility patents, design patents, plant patents, or PCT. The overall cost percentages presented below are a function of the volume of applications processed in each product area rather than per unit costs. The large majority of applications received are for utility patents, thus utility patents repre­sent the majority of costs. Cost percentages are based on both direct costs and costs allocated to the patent business line.

Trademark business operations cost $134.1 million in FY 2001, a 3.2 percent increase over the total trademark program cost of $130.0 million in FY 2000. While personnel and benefits costs directly attributable to the trademark business increased 15.4 percent, several other cost categories decreased in FY 2001 compared to FY 2000. The most notable reason for the decreases is a refinement in the process used to track information technology costs to customers. This refinement resulted in the trademark business line receiving a smaller portion of information technology costs than in the past, such as depreciation. In addition, in FY 2001, the information dissemination function (IDO) shifted to the information technology function. The information technology costs therefore included IDO costs and the refinement resulted in lower IDO costs for trademarks as well.

D

Trademark costs are comprised of processing three main products: use based marks, intent-to-use marks, and renewals after registration, which involves processing affidavits, corrections, and amendments. The overall cost percentages presented at right are a function of the volume of applications processed in each product area rather than per unit costs. Cost percentages are based on both direct costs and costs allocated to the trademark business line. The intent to use costs include costs related to examining both the application and the additional intent-to-use disclosures.